WD gros fromage: It wasn't $400m

Jim Pascoe, WD's corporate marketing director, told us: "You estimated that Skyera had secured $90m-$100m of funding following on from seed finance. In fact, the total amount Skyera had raised was approximately $50m."

On that basis, let's have a look at Skyera's funding history:

Founded 2010. Seed funding?

A-round - Skyera said its initial outside investor was WD.

June 2012 - Skyera said it was "backed by key technology and financial partnerships".

Third round (August 2014) - B-round investors provide capital infusion "to scale its sales and manufacturing cycles". Equivalent to C-round? Moreover, a CEO change at this time could be seen as indicative of some business revenue distress.

All-cash acquisition for undisclosed amount.

We can see that Skyera's total funding was ($51.6m, plus seed funding, plus several rounds) and we here estimated it at $90-100m, but as stated, Pascoe's mail indicated otherwise, at "approximately $50m".

How much was the seed funding, plus A-round, plus C-round, and how much could the total funding figure be while still being "approximately $50m?"

Let's say $60m is likely, but $70m is less likely, and $80m too much. We'll shoot for $65m.

We'll assume each WD funding contribution would have given it a stake in Skyera and a purchase of Skyera would have meant buying out the other investors. So if, hypothetically, WD owned 50 per cent of Skyera, it would have to pay the other funding entities to get the remaining 50 per cent. How much did it pay?

Pascoe's mail said: "With respect to purchase price, the estimate you included in the piece was substantially higher than what was actually paid. This was a non-material acquisition. Had it been in the $400m range as you suggested, we most certainly would have disclosed the figure."

What does non-material mean? We understand it to mean a price paid in cash or stock that would neither affect the share price or WD's cash balance which, in turn, would affect the share value. WD is currently capitalised at $24.5bn, and its shares trade at $105.4.

Cash and short-term investments were $5.38bn in September and we know WD paid cash. Pascoe implies $400m would be a material amount.

OK then, let's essay this line of acquisition price thought to try and get a better approximation of the purchase cost:

With three funding contributions let's assume WD owned 50 per cent of Skyera

Skyera's total funding was $65m

WD had put in $32.5m and needed to buy out the remaining 50 per cent from the other investors

A 1X payout for them would mean WD paying $32.5m

2X would mean $64.5m

3X would imply $97.5m

4X would mean $129m

5X would imply $162.5m

We think that the 5X sum, $165m in cash, could still arguably be viewed as non-material by WD with the smaller payout estimates being increasingly non-material. Let's take the middle ground and say, in the light of Pascoe's mail and our assumptions, WD paid around $100m for the Skyera shares it did not own, but might have paid up to $165m.

The actual amount depends upon how many Skyera shares WD already owned, how much distress, if any, Skyera was experiencing, and how much more money would be needed to turn its technology into profitable products.

We'll settle for $100m while agreeing that, if Skyera was in substantial business distress then WD might have paid more like $50m, or even less if it owned a lot of Skyera already and the distress was acute. ®